Article Highlights

  • Canadian dollar at C$1.2797, or 78.14 U.S. cents
  • Loonie touches weakest since April 9 at C$1.2805
  • Bond prices mixed across steeper yield curve
  • 10-year yield hits highest since Feb. 16 at 2.365 percent
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The Canadian dollar weakened to a two-week low against its U.S. counterpart on Monday, as the greenback broadly rose and after Bank of Canada Governor Stephen Poloz showed comfort with inflation running above the central bank’s 2-percent target.

Poloz said he expects the inflation rate to be above 2 percent in 2018, but he is comfortable with that as long as the long-term trend is steady, according to media reports published on Sunday.

Data on Friday showed that Canada’s annual inflation rate in March edged up to 2.3 percent, the highest in more than three years. Investors have been weighing whether higher inflation will prompt the central bank to raise interest rates further over the coming months.

The U.S. dollar rallied to a seven-week high after a rise in the 10-year U.S. Treasury yield to within a whisker of the psychologically important 3-percent level prompted buying of the greenback.

At 8:45 a.m. EDT (1245 GMT), the Canadian dollar was trading 0.2 percent lower at C$1.2797 to the greenback, or 78.14 U.S. cents. The currency, which fell 1.2 percent last week, touched its weakest level since April 9 at C$1.2805.

Losses for the loonie came as the price of oil, one of Canada’s major exports, fell on rising U.S. borrowing costs and the prospect of further output rises after another increase in the weekly rig count.

U.S. crude prices were down 1.4 percent at $67.43 a barrel.

Canadian wholesale trade decreased by 0.8 percent in February from January, amid falling sales in the miscellaneous and motor vehicles and parts subsectors, Statistics Canada said. Analysts had expected a 0.5 percent increase.

On a brighter note for the currency, Canada and Mexico on Friday said good progress had been made in talks with the United States to modernize the North American Free Trade Agreement (NAFTA) and ministers would meet again on Tuesday as they push to wrap up a deal.

Canada sends about 75 percent of its exports to the United States. Its economy could benefit if a NAFTA deal is reached.

Canadian government bond prices were mixed across a steeper yield curve, with the two-year up 2.4 Canadian cents to yield 1.926 percent and the 10-year falling 13 Canadian cents to yield 2.353 percent.

The 10-year yield touched its highest intraday since Feb. 16 at 2.365 percent.